Why investors love gold now

Because of the rising rupee, the gold price in the Indian market might not go up fast, notes Sharleen D’souza

The US Federal Reserve’s decision to continue bond-buying has lifted investor sentiment for gold and silver.

After the Fed announcement, both metals went up over five per cent in the US market.

In Indian market also, both metals rose, but the rise was capped because of appreciation in the dollar value of the rupee.

In the Mumbai spot market, gold climbed 0.9 per to Rs 30,280 per 10g, while silver moved up 1.8 per cent to Rs 51,815 a kg.

Spot gold internationally was trading at $1,367.51 per ounce, up 0.2 per cent, while spot silver was trading flat at $22.97 per ounce.

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Gold on MCX in day trade stood at Rs 30,424 per 10 g, compared with Wednesday’s close of Rs 29,990 per 10g. Silver was at Rs 51,185 a kg, compared to Wednesday’s close of Rs 49,577 a kg.

Market participants say by continuing bond-buying, the Fed has ensured the dollar remains weak, which means money will flow to risker assets like equities and gold.

“Large part of liquidity will go towards equities in the US, but investors will also buy gold as it has been trading lower and international gold could go up to $1,450,” says Gnanasekar Thiagarajan, director-Commtrendz Research.

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“In India, however, weaker dollar means stronger rupee, which will cap the rise in gold prices.”

He believes base metals are expected to see offtake and hence prices will remain high which will also benefit silver.

Because of the rising rupee, the gold price in the Indian market might not go up fast. Gnanasekar puts the Indian price target at Rs 31,000 per 10g.

Reena Rohit, an analyst with the Angel Commodities says: “Easy liquidity has been good for gold price and that was reflected today after yesterday’s (Fed) announcement. Investors are back to the market.”

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While from domestic demand side, inauspicious fortnight (pitru paksha) for gold buying is beginning from Friday, retail customers will stay away from the market for the time being.

However, “traders have started buying gold to remain prepared for the upcoming demand season,” says Rajiv Popley, director, Popley Group.

On the other hand, base metals traded on a negative note on Indian markets despite commodities moving up internationally, due to appreciation in the rupee.